Current U.S. federal personal income tax systems have two different sets of Tax Rate Schedules (including related tables) and Tax Table/Tax Computation Worksheet. Tax Rate Schedules are used to estimate income taxes. Tax Table and Tax Computation Worksheet are used to figure out accurate tax payments. Tax Table is usually 12-pages long. For example, the 2014 Tax Rate Schedules with the 7 tax brackets and tax rate ranges from 15% to 39.6%, which were published in late 2013, were used for employers to estimate employees' income taxes and withholding taxes for 2014. 2014 Tax Table and Tax Computation Worksheet, which were published in early 2015, were used for employees to calculate their accurate taxes for filing tax returns by Apr. 15, 2015.
Based on Tax Rate Schedules, employers estimate income taxes, transfer withholding taxes (including income, social security and Medicare taxes) to the IRS and report Form W-2 with employees' social security wages, paid federal and state taxes to the IRS by Mar. 15, 2014 Tax Rate Schedules (partial) are shown in Table 1, which are slightly changed from 2013 Tax Rate Schedules (partial) in Table 2. For example, the second taxable income range is changed slightly from 17,850-72,500 to 18,150-73,800. The IRS does not know employee information or is not capable of verifying or inspecting how much taxes employees should pay from the W-2. All employees need to correct employers' tax estimations with tax returns based on Tax Table and Tax Computation Worksheet. The Tax Table (partial 2013), which has 12 pages, is shown in Table 3. The IRS cannot compare because of having no detailed individual tax data. Then the IRS has no enough time to verify or inspect before sending tax refunds within a limited time of receiving tax returns, which gives tax criminals a chance for possible tax theft crimes.
TABLE 1Partial 2014 Federal Personal Tax Rate Schedules (7 tax brackets)Taxable income (TI)OverNot overTax isThe Amount is overTax EstimationSchedule Y 1 - Married Filing Jointly or Qualifying Widow(er)   0-18,15010%0.1 * TI18,150-73,800 1,815 + 15%18,150 1,815 + 0.15 (TI-18,150)226,850-405,10050,765.00 + 33%  226,85050,765.00 + 0.33 (TI-226,850)  405,100-457,600109,587.50 + 35%  405,100109,587.50 + 0.35 (TI-405,100)  457,600127,962.50 + 39.6% 457,600127,962.50 + 0.396 (TI-457,600)   Schedule Z - Head of Household   0-12,95010%0.1 * TI12,950-49,4001,295.00 + 15% 12,95012,950 + 0.15 (TI-12,950)405,100-432,200113,939 + 35%405,100113,939 + 0.35 (TI-405,100)432,200  123.424 + 39.6%432,200123.200 + 0.396 (TI-432,200) Schedule X - Single   0-9,07510%0.1 * TI405,100-406,750117,541.25 + 35%  405,100117,541.25 + 0.35 (TI-405,100)  406,750118,118.75 + 39.6% 406,750118,118.75 + 0.396 (TI-406,750)   Schedule Y 2 - Married Filing Separately   0-9,07510%0.1 * TI202,550-228,80054,793.75 + 35%  202,55054,793.75 + 0.35 (TI-202,550)  228,80063,981.25 + 39.6%228,80063.981.25 + 0.396 (TI-228,800)  
TABLE 2Partial 2013 Federal Personal Tax Rate Schedules (7 tax brackets)Taxable income (TI)OverNot overTax isThe Amount is overTax EstimationSchedule Y 1 - Married Filing Jointly or Qualifying Widow(er)   0-17,85010%0.1 * TI17,850-72,500 1,785 + 15%17,850 1,785 + 0.15 (TI-17,800)223,050-398,35049,919.50 + 33%  223,05049,919.50 + 0.33 (TI-223,050)  398,350-450,000107,768.50 + 35%  398,350107,768.50 + 0.35 (TI-398,350)  450,000125,846.00 + 9.6% 450,000125,846.00 + 0.396 (TI-450,000)   Schedule Z - Head of Household   0-12,75010%0.1 * TI12,750-48,6001,275.00 + 15% 12,75012,750 + 0.15 (TI-12,750)398,350-425,000112,037 + 35%398,350112,037 + 0.35 (TI-398,350)425,000121.364.50 + 39.6  425,000121.364.5 + 0.396 (TI-425,000)  Schedule X - Single   0-8,92510%0.1 * TI398,350-400,000115,586.25 + 35%  398,350115,586.25 + 0.35 (TI-398,350)  400,000116,163.75 + 39.6% 400,000116,163.75 + 0.396 (TI-400000)  Schedule Y 2 - Married Filing Separately   0-8,92510%0.1 * TI199,175-225,00053,844.25 + 35%  199,17553,844.25 + 0.35 (TI-199,175)  225,000  62,923 + 39.6%225,00062.923 + 0.396 (TI-225,000)
TABLE 3Partial 2013 Federal Tax Table (12 pages)Taxable income (TI)2013 TaxOverNot overY-1ZXY-20500005151111507566661,0001,0251011011011018,9008,95089389389389310000100501003100310581058500005005066117009843584359995010000016851194962128621726
The two different tax sets of early tax estimations from Tax Rate Schedules and later accurate tax returns from Tax Table and Tax Computation Worksheet have tax rate differences, which require all employees to file tax returns to correct early tax estimations for accurate tax returns. Therefore taxpayers and the federal government spend significant time and costs. Many state governments have similar tax systems as the federal tax system. Hawaii's personal tax system has 12 tax brackets (1.4%-11%) and 3 tax filing statuses (Tax Table and Schedules I, II and III), which is the most complex personal tax system in all U.S. state personal tax systems. California personal tax system is relatively complex with 10 tax brackets (1.1%, 2.2%, 4.4%, 6.6%, 8.8%, 10.23%, 11.33%, 12.43%, 13.53% and 14.63%) and 5(3) tax filing statuses. Some states use flat tax rates, which are too simple and not reasonable to different incomes. Tax systems in the U.S. and many states, which include taxable income ranges, tax numbers in Tax Table and tax brackets, have been changed yearly or frequently. There were 7 tax brackets in 2013, 2014 and 2015, 6 tax brackets during 2010-2012, 16 tax brackets in 1980 and 25 tax brackets in 1970 in the U.S. federal tax systems. These differences and changes make our tax systems to be more complex. Many other countries have similar issues and challenges.
Under current federal and state tax systems, a single tax formula of tax=h+m(TI−n) or mTI−(mn−h) is used, where h, m and n are constants and TI is taxable income. When h and n are 0, the formula is tax=mTI, in which m may be 0.1. More tax brackets mean smoother tax rate changes while less tax brackets mean unsmooth tax rate changes. Smooth tax rate changes require more tax brackets with more tax processing time and costs. Current Tax Schedules are used to estimate income withholding taxes. Then exact income taxes are calculated by Tax Table and Tax Computation Worksheet. Current Tax Schedules in the U.S. and many state tax systems cannot be used to withhold accurate income withholding taxes because of the estimations. Besides in USA, many other countries also use tax=h+m(TI−n) format with multi tax brackets for income tax systems. Over the years, various attempts have been made to develop tax methods, systems and products based on current tax systems. U.S. Pat. No. 8,788,412 discloses a system and method for processing transaction and tax data, verifying tax calculations/determinations, reconciling calculation/determination errors, and filing and/or paying taxes. U.S. Pat. No. 8,682,766 discloses a method for providing a set of automated financial services to a set of clients. The set of automated financial services include payroll processing, trust fund management, investment of funds and ACH transactions processing. U.S. Pat. No. 8,612,318 discloses a method and system for payroll tax settlement that receives payroll tax files from a payroll provider system. U.S. Pat. No. 8,165,936 discloses a payroll system and method for generating, accumulating and reporting on payroll information. U.S. Pat. No. 8,099,342 discloses the methods, apparatus, and articles of manufacture for tax computation, management, and compliance reporting via a centralized transactional tax platform. U.S. Pat. No. 8,099,329 discloses the systems and methods for determining taxes owed for financial transactions conducted over a network. U.S. Pat. No. 8,082,144 discloses a tax calculation explanation generator. U.S. Pat. No. 7,966,231 discloses a method and system for determining taxes attributable to a financial transaction to create a tax rate table. U.S. Pat. No. 7,539,635 discloses a system and method for generating personalized tax device documents. U.S. Pat. No. 6,993,502 discloses a system and method for computing and collecting taxes, which has applications for determining taxes for transactions conducted over the Internet. U.S. Pat. No. 4,324,975 discloses a hand-held calculating device for calculating Federal Income Taxes or the like includes substantially flat, elongate front and rear cover members and an insert card.
Current U.S. state personal tax systems are usually simpler than the federal personal tax systems. Some states use flat tax rates and some states use up to 9-12 tax brackets in state personal tax systems. A flat tax rate is too simple, which makes it difficult to cover both low and high or different taxable incomes reasonably. Tax systems with more tax brackets (such as 6-25) are too complex, which requires more time and costs. The best is to make simplicity and fairness or avoid complexity and unfairness together with 2-5 (preferred 2-4) tax brackets for national and state personal and corporate tax systems, which provides convenience to develop tax systems, methods and products.
More and more people and governmental officers would like governments, employers and employees to spend less tax processing time and costs with a simple and fair tax system. To increase tax processing efficiency and reduce related time and costs are very important. A flat tax rate is good for sale tax rate, which is operated easily. For individuals and corporations, their taxable incomes are different. One or several flat tax rates are extremely difficult to cover different taxable incomes and situations reasonably and simply. The current U.S. federal and many states often have 5 to 12-page Tax Tables, which are too complex. Individuals and corporations with different taxable incomes should relate to reasonable low-to-high tax rates. The simplification of the current tax systems with fair tax rates has been a hot topic for many years.